European nations create workaround to US Iran sanctions

By DAVID RISINGJanuary 31, 2019

FILE - In this Oct. 26, 2010 file photograph, a worker rides a bicycle in front of the reactor building of the Bushehr nuclear power plant, just outside the southern city of Bushehr. Iran's deputy foreign minister said Thursday, Jan 31, 2019, that he believes European Union nations soon will announce they've created a program for Iran to continue trade there and avoid re-imposed U.S. sanctions over its nuclear program. (AP Photo/Mehr News Agency, Majid Asgaripour, File)

BERLIN (AP) — Three European countries that have been working to preserve a deal limiting Iran’s nuclear capability have established a new system so their companies can continue trading with the Mideast nation without incurring U.S. sanctions, diplomats said Thursday.

The barter-type system set up by France, Germany and Britain is designed to allow businesses to skirt direct financial transactions with Iran and thereby evade possible U.S. sanctions, setting up a potential collision with President Donald Trump’s hard-line policies on Tehran.

Once the process is up and running, a financial institution, known as an “Instrument in Support of Trade Exchanges” or INSTEX, would run a payment channel, brokering Iranian imports in and European exports out, while insulating the companies involved.

In a joint statement, the foreign ministers of Germany, Britain and France sought to allay Washington’s possible fears.

“INSTEX will function under the highest international standards with regards to anti-money laundering, combating the financing of terrorism and EU and U.N. sanctions compliance,” their statement said.

The three nations have been working on the plan for months. It follows Trump’s decision last year to unilaterally withdraw from the international accord aimed at preventing Tehran from developing nuclear weapons in exchange for economic incentives. His administration also introduced new sanctions on Iran.

The other parties to the 2015 agreement — France, Britain, Germany, Russia and China — have been scrambling to keep the deal alive. In recent months, Iranian officials threatened to resume enriching uranium to higher purities than allowed under the deal, putting pressure on the Europeans to find a way around the sanctions.

“This is a clear, practical demonstration that we remain firmly committed to the historic 2015 nuclear deal struck with Iran... for as long as Iran keeps implementing it fully,” British Foreign Minister Jeremy Hunt said..

The ministers emphasized that their payment channel is “aimed at facilitating legitimate trade between European economic operators and Iran.”

“We’re making clear that we didn’t just talk about keeping the nuclear deal with Iran alive, but now we’re creating a possibility to conduct business transactions,” German Foreign Minister Heiko Maas told reporters Thursday after a meeting with European counterparts in Bucharest, Romania.

“This is a precondition for us to meet the obligations we entered into in order to demand from Iran that it doesn’t begin military uranium enrichment,” Maas said.

Iranian Foreign Minister Mohammad Javad Zarif welcomed the establishment of INSTEX, saying in a tweet it was a “long overdue 1st step” to save the nuclear deal.

The European Union’s foreign policy chief, Federica Mogherini, who helped negotiate the 2015 accord with Tehran, said the new system would be “essential for the continued full implementation of the nuclear deal with Iran.”

The U.S. State Department said it was “closely following” reports on the European mechanism, which originally was known as a “special purpose vehicle,” for details about exactly what would be involved.

“As the president has made clear, entities that continue to engage in sanctionable activity involving Iran risk severe consequences that could include losing access to the U.S. financial system and the ability to do business with the United States or U.S. companies,” the State Department said in a statement.

INSTEX is to be headquartered in Paris and overseen by a German banker.

The three foreign ministers said a parallel structure would have to be set up in Iran and other work needs to be done to “address all the technical and legal aspects required to make this vehicle operational.”

At the outset, the European institution will concentrate on products that are not currently subject to U.S. sanctions, such as medicine, medical supplies, and agricultural goods.

Many of Europe’s biggest companies shut off all commerce with Iran when the U.S. stepped up sanctions, exercising an abundance of caution. The governments of Germany, France and Britain hope the workaround will lure back some trade of non-sanctioned goods, though it’s not clear if companies would try to do business through the new state-run system and risk possible U.S. retribution down the road.

Stefan Mair, a board member of the influential Federation of German Industries, welcomed the establishment of the financial institution, but expressed skepticism about how effective it might be.

“Central questions remain open,” he said. “The clearinghouse is dependent on Iran’s sanctioned oil and gas business. This continues to pose a significant risk to building long-term business relations.”

Though established by Britain, Germany and France, other European Union nations were expected to join as well.

Belgian Foreign Minister Didier Reynders said the EU wanted to continue to support the nuclear deal.

“The most important thing is to show our American colleagues that we are moving in the same direction on a whole series of issues, such as ballistic missiles or Iran’s regional influence, but that we do have a difference of opinion on the nuclear agreement,” Reynders said. “I hope we can also find a solution.”

Iranian Deputy Foreign Minister Abbas Araghchi told Iran’s state television he expected the mechanism to be ready to start brokering business in one or two months.

“The next issue is how European companies are willing to join SPV with this mechanism,” he said.

Iran’s ambassador to the United Kingdom, Hamid Baeidinejad, said on Twitter he also thinks the start of the program was imminent.

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Frank Jordans in Berlin, Jon Gambrell in Dubai and Matthew Lee in Washington contributed to this report.